Brighter US outlook spurs inflows to Asia, haven bets falter

[NEW YORK] Foreign-exchange traders are unwinding haven wagers and pouring cash into higher-yielding currencies as US economic data improve and emerging markets stabilize.

The yen, which typically benefits in times of market turmoil, slid versus all but three of its 31 major counterparts on Thursday, as global stocks recouped some of this year's losses and the slide in commodity prices faded.

As overseas investors boosted trades in some of Asia's markets, the Indian rupee was among the biggest winners, rising for a fifth day. Taiwan's dollar climbed to a two-month high against the US currency, prompting the nation's central bank to intervene to stem its ascent. Global funds pumped more than US$2 billion into emerging Asian stocks and bonds this month.

The yen has still strengthened at least 2.3 per cent versus all of its 16 major peers this year as concern China's economy is slowing roiled financial markets around the world.

The dollar-yen pair "has gone up in line with equities," said Stuart Bennett, London-based head of Group-of-10 currency strategy at Banco Santander SA. "The move in dollar-yen was excessive. When it moves that amount in one month, it's likely either to reverse or at the very least not continue to move." The yen may weaken to 118 per dollar in March if the current trend persists, Bennett said.

Japan's currency dropped 0.4 per cent to 113.92 per dollar as of 8:19 a.m. in New York after depreciating to 114.56 on Wednesday, the weakest level since Feb. 16. The yen declined 0.7 per cent to 124.18 versus the euro. The shared currency rose 0.3 per cent to $1.0901.

"The yen is playing catch-up today," said James Purcell, cross-asset strategist at UBS Group AG's wealth-management business in Hong Kong. "Dollar-yen positioning was simply too extreme." Options traders aren't as bullish on the yen as they were last month. The premium for contracts to buy the currency versus the dollar in three months, over the cost of those to sell, was at 2.34 percentage points, after rising to 2.67 on Feb. 24, the most since July 2010, according to end-of-day risk reversal prices compiled by Bloomberg.

Bets from large speculators that the yen will gain versus the dollar climbed last week to a net 52,734 contracts, a four- year high.

Demand for higher-yielding assets rose after a private report on US payrolls showed companies added more workers last month than economists projected. The Labour Department will release its monthly employment data Friday.

The Australian dollar advanced for a fourth day against the greenback as oil climbed toward $35 a barrel in New York and iron-ore futures on the Dalian Commodity Exchange traded at an eight-month high. Investors shunned the currency at the start of the year as anxiety over China's ability to manage a slowing economy clouded the outlook for global growth, casting doubts on the Fed's ability to add to its December rate increase.

The Aussie climbed 0.6 per cent to 73.42 US cents.

In emerging markets, the Indian rupee is set for its longest winning streak since December, after overseas investors boosted holdings of local stocks. Finance Minister Arun Jaitley in his budget speech a day earlier announced boosting spending on a rural jobs program and proposed a new health insurance plan, while allocating money for higher government wages and military pensions.

The rupee gained 0.3 per cent to 67.34 to the dollar, according to prices from local banks compiled by Bloomberg.

"The rupee is echoing the euphoria in the debt and equity markets post the budget, which aims to stimulate growth while maintaining fiscal prudence," said Anindya Banerjee, associate vice-president for currency derivatives at Kotak Securities Ltd. in Mumbai. A revival of demand for riskier assets is also aiding the rupee, he said.

Taiwan's dollar strengthened 0.6 per cent to close at NT$33.179 against the greenback, according to Taipei Forex Inc prices. The currency earlier reached NT$32.954, the strongest since Jan 4.

BLOOMBERG